Health-care reformers who want a public health-insurance option to keep private health insurers competitive have a point: If there were ferocious competition in the private health-insurance markets, prices would be better controlled. In Switzerland, for example, competition among that country’s 85 private health insurers resulted in negative price increases since 2005 and considerable public support. In the U.S., by contrast, health-insurance prices rose by 16.5 percent and Americans hold insurers in low regard.
But, as President Obama clarified last night, the public option is unlikely to get off the ground. People are worried that Congress will underprice the public plan, inducing enrollees to leave private insurers and forcing all of us to make up for their underpayment through increased taxes and deficits. Medicare’s $38 trillion liability provides worrisome validation of these concerns.
But there is another remedy for shaking up this market: increased transparency. Unlike the public option, this is actually favored by voters: Americans overwhelmingly want the government to require that performance ratings on hospitals and doctors be publicly available.
Transparency could stimulate competition by revealing which insurance companies and policies provide the most medical-care benefits and best outcomes per dollar, which ones offer the best doctors and hospitals, and which ones hassle sick people the least. Armed with answers to these questions, consumers could reward best value. If insurers with lackluster scores do not improve, competitors would enter this surprisingly entrepreneurial market. (The leading providers of high-deductible insurance, for example, were formed only nine years ago.)
The benefits of transparency extend to insurers who could control costs by offering narrow networks consisting of the doctors and hospitals that provide the best values. In health care, as elsewhere in the economy, the best providers are frequently the lower-cost ones. The U.S. Congressional Budget Office (CBO), for example, estimated Medicare savings of $140 billion, from 2010 to 2014, from the utilization of regional centers of excellence for surgical procedures. Insurers typically do not offer these narrow networks because Americans suspect that insurers favor providers who are low cost, rather than high quality. The availability of data through which enrollees could independently verify the quality of doctors and hospitals would alleviate such concerns.
Further, the mere act of providing data motivates providers to effect changes, a phenomenon known as “the audit effect.” The CBO estimated that sharing peer-profile scorecards with physicians would save Medicare $350 billion from 2010 to 2014. Some evidence suggests that hospitals respond to publicly reported data with efforts to improve patient care and their standing in reports.
Transparency can also spur the adoption of important innovations. For example, although Johns Hopkins researchers virtually eliminated one type of hospital infection in Michigan intensive-care units, this intervention disseminated slowly, probably because infection rates are invisible. This life-saving program would have spread much faster were the public aware of infection rates.
Finally, if medical-care providers were required to post their prices for the uninsured, competition might follow. After all, from 2005 to 2006, the highest relative growth was among wealthy uninsured, those with household incomes of $75,000 or more. Some medical bankruptcies — one-fourth of which are incurred by the uninsured — could be avoided if uninsured people could compare prices for their medical care.
Yet despite transparency’s many benefits, we have virtually none of it in our health-care system. Transparency sites maintained by the federal and state governments and private firms contain sparse, frequently outdated information, limited only to hospitals, which generally measure the
process of rendering care rather than the
outcomes.
But let’s not dismiss government as a transparency agent. Although present government health-care efforts are unsuccessful, government can provide excellent transparency, as exemplified by the Securities and Exchange Commission. The SEC was created when Franklin D. Roosevelt opted for transparency to deal with the stock market’s collapse during the Great Depression. FDR called the SEC “the Truth Agency”: It required corporations whose securities were publicly traded to disclose their results, using generally accepted accounting principles audited by independent certified public accountants. The commission superseded numerous inconsistent state and private transparency agencies and thus enabled the development of a national capital market.
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